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Tuesday, June 6, 2017

Thoughts, Part 8

The last few weeks have been a real experience in the trade. I needed a vacation before; now I need a sabbatical. And that ain't coming, so I guess I'll settle for continuing to see singles sales grow.

May was soft overall, expectedly so. In the absence of a big-time release, like a Masters series set for Magic, May is not generally going to be a high-performing month. Students have finals and then they all go do other things to kick off the summer. We saw a pretty big sales and attendance resurgence to start off June, so that follows the expected pattern.

Part of May that was soft but didn't have to be soft was our Phoenix Comicon sales. With a drop of over 50% in gross despite a deeper product load, we saw no single product category underpunch its weight, but instead a lessening of overall volume. After some numbnut smuggled an arsenal of real guns right past security, fortunately ending up arrested, the PCC leadership promptly overreacted by banning fake guns and weapons (cosplay props) for the remainder of the show. The resulting security logjam kept people out of the convention for a healthy chunk of Friday and slowed things down for Saturday. In short, PCC management ruined the party, and spending tanked accordingly. Steampunkers stayed home, the 501st geared down, and even banana-wielding Deadpools were too late to lift spirits.

One good way to analyze the effect the prop ban was to look at the volume drop day-by-day. Thursday was almost unaffected and to get into the event that night meant you had already pre-purchased an all-weekend pass. The attendance decision happened before the gun incident ever did. Friday was down a lot, and Saturday was a disaster, with both being the key days that casual fans will buy a one-day pass to attend. In the wake of the prop ban and news of three-hour waits to get in, casual fans stayed home. Sunday bounced back, the second-least-drop from last year, because the mix of all-event passes is higher and the shorter hours and fewer guest appearances tend to result in a smaller casual day-pass crowd. So it's not difficult to use pure sales volume and an understanding of who attends and when to attach causality to the prop ban as the big blunder.

The greater danger of undercutting cosplay with a prop ban or anything else that affects that community more than others is that cosplay has been an enormous factor driving the growth of comics and comic conventions today. It has been a jackpot benefit on virtually every level both economic and social. It has bolstered sales of both core content and ancillary products, it has drawn women in droves to the hobby, and it has proven broad enough to reach everything from mature to family demographics, from indie to mass-market, and so on. The "new normal" is held up by an artificial floor created by the engagement of the cosplay community, even though they don't typically buy the costumes themselves from the comic and hobby trade retail tier due to the cosplay emphasis on homemade gear. If frustrated and marginalized swaths of cosplayers throw up their hands and move on, leaving the comic and hobby trade for other pursuits, look out below.

Uncredited image from Reddit

I was happy to see that hot board games still behave as hot products generally, despite the price sensitivity of my local market. We've seen good sales of A Feast for Odin and The Captain is Dead, both of which have small numbers still in stock. We easily sold out of our initial shipment of Dark Souls, without sacrificing a penny on the price tag. There haven't been any recent shipments of other grabbers like Terraforming Mars, Gloomhaven, or Scythe, but on at least a shallow reload I have confidence they'll clear again. It makes me wonder if the perverse incentive of the publisher to create scarcity, a la Nintendo, is actually something they can monetize out over several print runs before the dumping commences. In a vacuum the publisher wants to ship X-1 units where X is the total demand that will ever accrue to the title. Leave a perpetual micron of demand unmet out there, and get close to 100% efficient ROI. But with market behavior this year can they do that? The nuclear-demanded Final Fantasy TCG appears finally to have cliffed; Opus II is available at retail, and the reprint of Opus I that just landed has been soft enough that the eBayers are dumping it already. And that's on a very short-margin item. I'm dismayed to see this because Final Fantasy TCG has literally the highest production value of any trading-card-game product thus far.

Speaking of board games but also of miniatures and card games, the Asmodee North America group just announced exclusive distribution through Alliance Game Distributors. This includes Fantasy Flight Games (all Star Wars, all Game of Thrones, Netrunner, Runewars, Arkham Horror, etc); Days of Wonder (Ticket to Ride, Small World); Z-Man Games (Pandemic, Shadow Hunters); Plaid Hat Games (Dead of Winter); Catan Studios; and some other small subsidiary imprints. Asmodee, a subdivision of the megacorporation Eurazeo, represents probably a quarter to a third of the board game category right now in the hobby trade. So this is a pretty big deal. Rumor has it that Gamestop pushed for this as they already source through Alliance's parent company Diamond Comic Distributors for pop culture items and want to make a harder push into the analog side of games.

Alliance gets a lot of hate from the retail tier because they've had some prominent exclusives past and present, currently all of Mayfair and Da Vinci games plus Wizkids' HeroClix product line, and retailers who have run into indifferent sales reps or warehouse shipping issues felt frustrated that they couldn't take their business to an alternative vendor. I've been on both sides of that fence, since my first Alliance rep from 2012 was difficult to work with, so I sympathize with retailers who have faced these issues. My current Alliance rep is outstanding, and perhaps that will become more the norm if the company gets a lot of business and revenue growth out of the Asmodee exclusive. And I hope that's the case and that retailers get used to it because I'm here to tell you that this won't be the last time we see a convergence back toward exclusive channel management. If I had to place a bet on the next company to tighten the cords, it would be either Pokemon USA or Konami.

The reality is, there are bad actors in the comic and hobby trade these days. There are resellers who are content to devalue a product into the terlet bowl as long as they can clear a quick single-digit margin basically acting as a freight forwarder for it. And for as long as any product is multiply distributed, there is no practical way for a publisher to prevent this. Any attempt to cut off a source simply results in the reseller pointing to another source. With exclusivity, a publisher knows for a mortal fact exactly where a reseller got the goods. Any publisher that is playing the long game of building a resilient brand and wanting their MSRP to be less of a suggestion and more of a consensus is starting to look in this direction now and see if they can take greater control over their product movement. Apple did it, Nintendo did it, PING did it, LEGO did it, and now you're seeing it happen more and more in the hobby trade, with Asmodee's move following CMON Inc's consolidation to three distributors, Games Workshop's new trade terms, AEG's brand protection restrictions, and even smaller-scale early access for brick-and-mortar for products by the likes of Iello and Renegade. Existing brand reinforcement by e.g. Wizkids, Mayfair, and Steamforged has some proven effectiveness at this point.

How hard is it really for publishers to control their product flow? I've been asked this. It's more difficult that it looks at first glance. There are thirteen mainline distributors in North America and enough category specialist distributors in addition that we can't even keep track of them all. That's a hell of a lot of sourcing that doesn't even include manufacturer direct purchases like we get from Wizards of the Coast, Games Workshop, BCW, USAopoly, Chessex, Broken Egg, Offworld Designs, and like such.

The mainline distributors, alphabetically:

ACD

Aladdin

Alliance

Devir Americas

Diamond Comic Distributors

Grosvenor

GTS Distribution (merger of Gamus and Talkin' Sports)

Lion Rampant

Mad Al Distribution

Magazine Exchange

PHD

Southern Hobby

Universal

The category-specialist distributors, partial list:

Brybelly (publisher drop-shipping of cards, games, dice, toys)

E-Figures (miniatures)

Entertainment Earth (licensed pop culture merch, figures and toys)

Everest (specialty trade access to mass market product lines)

Golden Distribution (miniatures)

Hyperkin (video game accessories)

Ingram Group (books, games, gifts, video games)

Innex Inc. (video game accessories and licensed merch)

Japan Video Games (actually not a distributor of video games, mostly figures and toys)

Just Funky (licensed pop culture merch)

Synnex / Jack of All Games (video games and accessories)

Top Trenz (apparel and gifts)

Woodland Scenics (terrain elements, modeling supplies)

There are a few other online resellers who call themselves "distribution" or "wholesale" but they aren't really; they are just retailers who have succeeded in scaling up to that, such as Potomac Distribution. A lot of your larger comic and hobby stores will have accounts with most or all of these sources, whether they are using them or not. You just never know what you might need in a pinch. I am one of those hermits who doesn't like to keep an account open unless I am using it.

Need Pokemon cards? All thirteen mainline distributors have them and some of the others as well. Need Magic cards? Most of the mainline distributors have them; I think Diamond fulfills via Alliance but it's close enough. Need some common board game like Dominion? It might be easier to list the category guys who don't carry it, as most of the sources above do carry it.

So yeah, for most products, once they are shotgunned out there into channels, that genie is out of the bottle and whatever happens is whatever the market decides is going to happen. With a product that isn't red-hot-omg-instant-sellout, a lot of the time that means the product gets dumped. A first wave of retailers will buy it, not see quick turns, and clearance it out. Wholesale orders slow down or stop, and now the distributors above need to clear some warehouse floors so they make deals with bigger retailers, aggregators like Loot Crate, or just burn it up via Amazon. Everyone wants this product gone-gone-gone and turned back into money, even back into less money. It quickly becomes worthless. No publisher wants their game whose second printing is even now floating out of Shenzhen harbor to be worthless on arrival. It doesn't take a genius to see why crowdfunding became a popular, if sometimes misused, tool for many publishers. They don't have the clout that Asmodee has in being able to call these shots.

I was going to discuss another topic in today's "Thoughts" but after getting deeper into the foregoing than I expected, I think I'll hold that material for a future article. Have a great week everybody!

1 comment:

Thanks for the post , I love reading this blog when I have the chance. I'm really interested in seeing the inner workings of the LGS. The next time you answer questions as a "mail bag," I was wondering if you might be able to share some thoughts on the following. I recently visited Café Mox in Seattle, in which a board game/magic/miniatures store is attached to a pub and café. They allow people to check out games from the board game side and play them inthe pub side free of cost, with no time restrictions. I loved the place and the concept, but I can't imagine how it stays profitable. I'd love to hear your thoughts on the concept! Thanks!